Recent REIT results stoke lively debate

The first test of a new standard for forecasting the financial results of real-estate investment trusts has left analysts as divided as ever over how to portray the industryÂ's earnings.

The adoption late last year of a measure called operating net income for REITs was supposed to clear up a debate over earnings that has dogged the industry and split the analyst community. Instead, it has intensified the debate.

In the wake of fourth-quarter earnings reports that were the first since analysts adopted the new forecasting standard -- which excludes gains and losses on asset sales -- some analysts are considering meeting again to redefine the measure, while others are thinking of simply abandoning it.

'Unless everyone meets to redefine it or rethink it, [operating net income] is just going to die a gentle death,' says Gregory J. Whyte, an analyst at Morgan Stanley in New York, who had voted against adopting the new measure but agreed to go along with what the majority of analysts decided.

Jonathan Litt, an analyst at Salomon Smith Barney in New York, also voted against adopting the new measure but agreed to go along with the consensus. He now regrets his decision.

'Once earnings season got under way, it became apparent very quickly to us that the definition of [operating net income] the analysts had agreed upon was far too loose,' says Mr. Litt, who devoted most of a recent weekly research note to the issue.